What's a Short Sale

What's a short sale?

A short sale is when an owner isselling a home for which the current loan balance (pay off amount) exceeds the current market value of the property. Occasionally, though not kindly, referred to as being "upside down" or "under water" ~ i.e. owing more than it is "worth".

Generally owners would opt for a short sale when they can no longer afford the mortgage payment and re-financing and/or loan modification (reducing payments via the lender) are not an option. Though there are other reasons an owner may have to sell (for example to relocate for a job or personal reasons), for which refinancing or modifying the loan would not work for their circumstances. Regardless of the circumstances, a short sale can only be completed with the lenders consent and all sales are subject to lender's terms and conditions.

The advantages to a seller considering a short sale:

· Avoiding foreclosure

· Potentially preserving their credit report as, in theory, delinquent payments to the lender and a completed short sale will appear "less worse" than a foreclosure (*not guaranteed as it does depend on how it is reported by the lender to the credit report companies)

· Potentially avoiding a deficiency judgment (lender pursuing the seller for the remaining balance of the loan: the difference between the loan balance and the net sales proceeds to the lender). This varies amongst lenders, but lenders may pursue a deficiency judgment with both a foreclosure and a short sale, and some will waive the right to a deficiency judgment in the short sale acceptance/approval terms and conditions. *Of note, some states do not permit deficiency judgments or limit the amount that may be pursued.

Why would lenders agree to this?

· Since the owner is no longer paying the mortgage (in most cases), the loan is not bringing the lender any income (aka it has become a non-performing asset), permitting a short sale results in a lender losing less money in the long run

· The foreclosure process can be costly and slow and the value of the property may continue to go down. In addition, once the property is foreclosed on, the bank then has to spend time and money on it (maintenance, other carrying costs, commissions on the sale, and the costs associated with the sale)

Additional resource links:

· Making Home Affordable: Help for America's Homeowners

· Home Affordable Refinance

· Home Affordable Modification

· Home Affordable Foreclosure Alternatives (HAFA)

· Look Up Your Loan

· Find a HUD Approved Housing Counselor

There is a wealth of information on the internet and I am also happy to answer any additional questions you may have.

Please continue to follow my blog as I post additional information for buyers and sellers of short sales.

Mahalo, Jamie

***All owners/sellers and buyers in a short sale transaction should be aware that short sales can have legal, financial, tax and credit consequences and are advised to seek professional advice from an attorney, accountant, and tax professionals prior to entering into a short sale.

Jamie Friedman (RA)

Prudential All Star Realty

direct (808) 634-2011

fax (808) 356-1342

http://www.blogger.com/jamiejoy@aloha.net

http://www.blogger.com/www.MyKauaiProperty.com

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